Power Suppliers Ask Judge to Let Them Drop PG&E Deals

Published 4:00 am, Friday, April 13, 2001

Four power suppliers, which claim they are owed $59 million by money- strapped Pacific Gas and Electric Co., asked a bankruptcy judge yesterday to suspend their contracts with the utility and let them sell electricity on the open market.

PG&E officials quickly responded, saying the utility would start making twice-monthly payments next week to the four companies, as well as nearly 300 others.

Despite filing for bankruptcy last Friday in San Francisco, the utility has $2.5 billion cash on hand to pay the power suppliers, said PG&E lawyer James Lopes.

The four San Joaquin Valley-based cogeneration companies, which run turbines from steam produced by burning natural gas, said the payment problems have been going on for months.

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PG&E hasn't paid them anything since the start of February, the companies said in court filings, and for months before that only paid 15 percent of their contract price. The debt is building at $333,000 a day, they said, adding that they would go out of business, further reducing California's power supply, unless allowed to sell to others on the open market at higher prices.

But after hearing PG&E's promise to resume payments next week, U.S. Bankruptcy Judge Dennis Montali said there was no emergency requiring a speedy decision on whether to suspend the companies' contracts with the utility. The judge then postponed the matter until May 10 and warned Lopes he would schedule a hearing within a day if PG&E failed to make its first payment on Tuesday.

Attorney Gregory Clore, representing the four companies, said his clients' financial problems were compounded when the state Public Utilities Commission, which oversees the power contracts, adopted a new formula last month that reduced PG&E's payment obligations substantially.

With natural gas prices still rising, the small generators are "being forced to buy high and sell low," Clore said. "We can't continue to provide energy to PG&E at a rate that doesn't cover the cost."

A decision to let the four cogenerators withdraw power from PG&E and sell it on the open market, which Montali will again consider in May, could invite others to make the same request. Such small "alternative" suppliers provide about 18 percent of PG&E's electricity.

Yesterday's hearing illustrated the potential ripple effect of PG&E's bankruptcy petition on power generators tied to PG&E by contract, which lack the ability of conventional suppliers to take advantage of spiraling market prices. By filing for Chapter 11 protection April 6, the utility forced the generators to wait in line with other pre-April 6 creditors until an overall payment plan emerges from the bankruptcy proceedings.

Resolution of another critical issue -- whether the bankruptcy filing overrides the state PUC's attempt to restrict the amount of debt that PG&E can pass along to its customers -- was delayed further yesterday. A hearing before Montali on the PUC's new accounting rules, which require the utility to use its profits from power sales to offset its losses from power purchases, had been scheduled next Wednesday, but was postponed by mutual agreement until May 14.